Velo3D, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022; unaudited. Comparisons are with the corresponding 2021 periods. The 2021 figures largely reflect Legacy Velo3D before the September 2021 merger, so share-count comparisons are not directly comparable.
Business context
Velo3D develops and sells or leases metal additive-manufacturing printers, principally Sapphire and Sapphire XC systems, and provides support services. Management attributes sales growth mainly to Sapphire XC shipments and a higher average selling price, while reporting lower unit growth and a customer mix more weighted toward existing customers than originally planned.
Financial results and liquidity
Dollar amounts are in millions except per-share data and percentages.
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $19.6 | $7.1 | $31.9 | $8.3 |
| Gross profit / margin | $1.2 / 6.3% | $2.2 / 30.6% | $1.2 / 3.9% | $1.8 / 21.6% |
| Operating loss | $(26.2) | $(11.8) | $(54.4) | $(23.7) |
| Net income (loss) | $128.0 | $(12.5) | $62.6 | $(26.1) |
| Operating cash flow | Not provided by quarter | $(68.8) | $(13.0) |
- Revenue rose 175% in Q2 and 283% for the first half, led by printer sales. Printer sales were $17.6 million in Q2 and $27.8 million for the first half.
- Reported net income was driven by noncash fair-value gains: $130.2 million on contingent earnout liabilities and $23.7 million on warrant liabilities in Q2; first-half gains were $99.0 million and $17.7 million, respectively. These gains more than offset operating losses and should not be read as evidence of profitable operations. The statements show a Q2 earnout-liability gain; one MD&A passage describes that change as a loss, an apparent inconsistency to verify.
- Cash and cash equivalents were $43.5 million and short-term investments were $98.3 million at June 30, totaling $141.8 million, down from $223.1 million at December 31, 2021. First-half operating cash use was $68.8 million; investing cash use was $94.8 million, including $87.7 million of investment purchases and $8.6 million of property and equipment purchases.
- Total debt was $7.0 million ($5.1 million current; $1.9 million long-term). The company also reported $10.5 million of lease liabilities.
- Current assets were $222.6 million versus current liabilities of $53.5 million. Inventories increased to $61.9 million from $22.5 million at year-end.
- Stockholders’ equity was $182.6 million; accumulated deficit was $167.3 million. No income-tax provision was recorded.
Material changes and operating trends
- Q2 cost of revenue increased 271%, faster than revenue growth of 175%; first-half cost of revenue increased 369%, versus revenue growth of 283%. Gross margin fell substantially year over year.
- Management cited Sapphire XC launch pricing, product mix, higher materials, labor and factory overhead, and increased field support and reliability work. It expects supply-chain challenges to continue affecting gross margin during the remainder of 2022.
- R&D, selling and marketing, and general and administrative expenses increased materially year over year, reflecting product development, staffing, stock-based compensation, and growth investments.
- Bookings were $18 million for Q2 and $36 million for the first half; backlog was $55 million at June 30, compared with $28 million a year earlier. Backlog represents unfulfilled printer orders and is not recognized revenue.
- Three largest customers accounted for 65.1% of Q2 revenue and 65.6% of first-half revenue. The company identifies SpaceX as its largest customer.
Outlook, risks, and unusual items
- No specific full-year revenue or earnings guidance is provided. Management expects printer demand, recurring-payment revenue, and support revenue to grow with systems in the field, while continuing investment in R&D, sales, and manufacturing. It expects operating cash use to increase in the remainder of 2022 and anticipates $2–$3 million of additional factory equipment and facility spending in the second half, subject to business and market conditions.
- Management stated that available cash and investments, together with expected operating cash generation, should fund working capital and capital expenditure needs for at least 12 months from the August 12, 2022 issuance date. This depends on operating performance and market conditions; the filing also says additional financing may be needed.
- After quarter-end, the company amended its Silicon Valley Bank facilities: the revolver was increased to $30 million and extended to December 31, 2024, and a secured equipment-loan facility of up to $15 million was established. The amended agreement includes minimum liquidity of $20 million and quarterly revenue covenants for 2022. The company also issued the lender a warrant for up to 70,000 shares at $2.56 per share.
- The company had $53.2 million of non-cancellable purchase commitments for parts and assemblies, primarily due in the second half of 2022.
- Disclosure controls were not effective at June 30, 2022 because previously identified material weaknesses remained unremediated. Weaknesses involve staffing and segregation of duties, accounting and valuation of debt/equity instruments and other balances, and IT access and change-management controls. The company reported immaterial misstatements in the March and June 2022 interim periods and said remediation was underway.
- Key risks include customer concentration, supply-chain and shipment delays, Sapphire XC ramp and product reliability costs, margin pressure, ongoing losses and cash consumption, financing and covenant compliance, and the possibility that reservations or backlog do not convert to timely shipments or revenue. The company reported no material legal proceedings.
Important facts for investors to verify
- Whether the $55 million backlog and bookings convert into shipments, accepted installations, and collected revenue on schedule.
- Whether Sapphire XC production, reliability, support costs, and supply constraints improve enough to restore gross margins.
- Customer concentration and the financial and ordering outlook of major customers, including SpaceX.
- Cash burn, the availability and terms of the expanded credit facilities, and compliance with minimum-liquidity and revenue covenants.
- Progress in remediating material weaknesses and the Q2 earnout fair-value narrative inconsistency between the financial statements and MD&A.
- Potential dilution from outstanding warrants, equity awards, and the registered shares available for resale.